The need for speed: Transforming the life insurance industry
By now, every insurer, and adviser, is aware of the disruptive impact that technology is having on their company and business model.
While the impact in South Africa is only starting to take effect, the impact of disruption in the US is far more intense. Surveys show that 52% of Fortune 500 companies in the US have disappeared in the last 15 years purely because of the disruptive force of technology.
There is a brighter side to this though. More than half of the CEOs from another survey said that technology will offer major opportunities for innovation.
The not so distant horizon
The opportunity to innovate is what is being presented to South African life insurers. At the RGA Client Day, Michael Porter – Head of Client Solutions at RGA Reinsurance Company of South Africa – said that the main motivation for innovation must be the desire to create more value for shareholders and policyholders.
“The life insurance industry has a long history in South Africa but has operated with a business model that worked well at a specific time. We need to be innovative to add value but also to remove the pain points that policyholders experience along the client journey,” said Porter.
Scary statistics
Just how bad is the situation in South Africa?
Porter pointed to research done into direct life insurers which showed that for every R1 in premium that is paid by a client, he/she receives between 15 cents and 40 cents back in value. Can we say that we are treating customers fairly when this is the case?
Porter also points out that the volatile economic climate that we are operating in is tough on businesses. “Lapse rates are high, particularly in the South African context. If we look purely at the direct space, we see that insurers are finding it very difficult to recover fixed cost. This cost gets passed onto clients in the form of increased premiums, which forces them to leave because they are also experiencing significant economic pressures,” said Porter.
He added that there needs to be major innovation when it comes to the insurance sale cycle, particularly when it comes to commercial insurance. “It currently takes a person in RGA two weeks to negotiate a sale with an insurer. Why does it take this long when technology makes it possible to do it within a few hours?” asked Porter.
Need for speed
So, what exactly are clients looking for when it comes to innovation from life insurers?
“Clients are looking for speed. They want to speed up the sales process, the underwriting process as well as the claims process,” explains Jared Godwin, Client Solutions Actuary at RGA Reinsurance Company of South Africa.
Godwin added that one of the immediate places where speed can be introduced is the application form that a policyholder fills in at the beginning of the sales process. “There is a company in the US that connects to external databases to acquire client information. When a client then logs on to fill in the application form at the beginning of a sale, it is just a matter of checking if the information is correct and tweaking if necessary,” said Godwin.
Simplicity is key
Simplicity is also a key ingredient when it comes to speed. “What if we were able to waiver a medical at point of sale? There are life insurers in various countries around the world who are accessing external databases and prepopulating forms with information of simple disabilities that clients have. If they are more complicated, then obviously medicals will be needed. Access to external databases also allows insurers to cherry pick clients and tailor messages to suit them,” said Godwin.
He added that data protection is not about access to information but rather the ethical use of information.
While this is partially correct in theory, it is very subjective in practice. Unless there are guidelines to regulate the ethical use of information, accessing information on external databases is too much of a temptation for direct marketing companies who will now know where you live, work and medical information you may not want them to know.
Editor’s Thoughts:
There is a need to reinvent certain aspects of the long term insurance model. While policyholders are looking for speed, they also want to know that their information is protected. Responsible innovation is needed where trust is the foundation of any changes that are made. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
